GE’s “Reverse Innovation” Strategy: Exploring the Advantages and Challenges for Large Global Businesses

QUESTION

GE Innovates from the Base of the Pyramid

Most business people would agree that being an innovator can be very valuable but this case suggests that it may be useful to “innovate in the way one innovates,” like General Electric has done with its “reverse innovation” strategy.

Discuss innovation and reverse innovation for large global businesses.

Address the following in your paper:

·           What are the similarities and differences between GE’s traditional innovation and reverse innovation?

·           Why is GE so interested in reverse innovation?

·           What are the main concerns that prevent Western MNEs from aggressively investing in emerging economies? What are the costs if they choose not to focus on emerging economies?

·           Why is a leading US MNE such as GE afraid of emerging multinationals from emerging economies?

ANSWER

GE’s “Reverse Innovation” Strategy: Exploring the Advantages and Challenges for Large Global Businesses

Introduction

In today’s rapidly evolving global business landscape, innovation has become a key driver of success. Large global businesses, like General Electric (GE), understand the significance of staying ahead in the market through constant innovation. However, GE has gone a step further by adopting a unique approach known as “reverse innovation,” which involves innovating in emerging markets and then scaling those innovations globally. This paper delves into the concept of innovation and reverse innovation for large global businesses, focusing on GE’s approach and its motivations. Additionally, it explores the concerns that prevent Western multinational enterprises (MNEs) from investing aggressively in emerging economies, the potential costs of neglecting these markets, and why even a leading US MNE like GE is wary of emerging multinationals from developing economies.

Similarities and Differences between GE’s Traditional Innovation and Reverse Innovation

Traditional innovation at GE typically involves conducting research and development in advanced markets, such as the United States, and then adapting those innovations for global markets. In contrast, reverse innovation entails starting the innovation process in emerging markets and leveraging their unique needs and constraints to develop products and services tailored specifically to those markets. While both approaches aim to create cutting-edge solutions, the key difference lies in the starting point and adaptability to local demands.

Traditional innovation benefits from a well-established infrastructure and access to a skilled workforce in developed markets. However, it might overlook the unique requirements and price sensitivities prevalent in emerging economies. Reverse innovation, on the other hand, is more customer-centric, cost-effective, and disruptive, allowing GE to tap into untapped markets and expand its global reach.

GE’s Interest in Reverse Innovation

GE’s interest in reverse innovation stems from several compelling factors. Firstly, emerging markets represent a significant portion of the world’s population, providing a vast consumer base and growth opportunities. By catering to these markets, GE can achieve sustainable growth and gain a competitive advantage over rivals who ignore these regions.

Secondly, reverse innovation enables GE to create products and services that are not only suitable for emerging markets but can also be adapted and introduced in developed markets. This approach allows GE to diversify its product portfolio and address the varying needs of customers worldwide.

Furthermore, adopting a reverse innovation strategy allows GE to access a pool of local talent and form collaborative partnerships with local businesses and governments. Such partnerships foster knowledge exchange, market insights, and improved distribution channels, all of which contribute to GE’s overall success in these markets.

Concerns Preventing Western MNEs from Investing Aggressively in Emerging Economies and Associated Costs

Several concerns deter Western MNEs from aggressive investment in emerging economies:

a) Political and Regulatory Risks: Emerging economies might exhibit political instability, regulatory uncertainties, and protectionist policies that can impact foreign businesses’ operations.

b) Infrastructure Challenges: Inadequate infrastructure in some emerging markets can hinder distribution, logistics, and access to raw materials.

c) Intellectual Property Protection: Western MNEs may fear a lack of robust intellectual property protection in certain developing countries, making them vulnerable to patent infringements and counterfeit products.

d) Socio-cultural Differences: Understanding and adapting to local cultures and preferences can be complex, affecting the successful market penetration of products.

The costs of neglecting emerging economies can be severe. These markets offer immense growth potential, and MNEs failing to capitalize on these opportunities risk losing market share and revenue growth. Rivals and emerging multinationals from these markets might gain a competitive edge, eroding the global dominance of Western MNEs.

GE’s Apprehensions of Emerging Multinationals from Developing Economies

Despite being a leading US MNE, GE may fear competition from emerging multinationals for various reasons:

a) Niche Market Expertise: Emerging multinationals are well-versed in catering to local preferences and demands, enabling them to secure a dominant position in specific niche markets.

b) Cost Advantage: Companies from developing economies often benefit from lower production costs and labor expenses, allowing them to offer more competitive pricing.

c) Agility and Adaptability: Emerging multinationals are nimble and adaptable, allowing them to respond quickly to changing market dynamics and gain an advantage over larger, more bureaucratic competitors.

d) Collaborative Partnerships: Emerging multinationals forge strategic alliances and partnerships with local stakeholders, facilitating market entry and expansion.

Conclusion

In conclusion, GE’s “reverse innovation” strategy exemplifies how large global businesses can benefit from innovating in emerging markets to meet local demands and subsequently expand worldwide. The company’s interest in reverse innovation is driven by the vast growth opportunities and access to local talent that these markets offer. However, concerns about political risks, infrastructure challenges, intellectual property protection, and socio-cultural differences often dissuade Western MNEs from aggressive investments in emerging economies. Neglecting these markets can have substantial costs in terms of missed growth opportunities and increased competition from emerging multinationals. Despite being a leading US MNE, GE recognizes the potential threat from emerging competitors due to their niche market expertise, cost advantage, agility, and collaborative partnerships. Embracing reverse innovation and actively engaging in emerging economies can help GE and other large global businesses maintain their competitive edge in the ever-changing landscape of international business.